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US-China Trade Deal Uncertainty Keeps Markets on Edge

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US-China trade talks

The US-China trade talks are set to resume next week. The two sides have held four rounds of trade talks since President Trump and President Xi Jinping agreed to a 90-day truce last year. While China is pushing for the United States (SPY)(IVV) to lift all its tariffs as part of the deal, the United States seems to be in no hurry to make concessions until it’s convinced China won’t go back on its promises. Apart from the trade deficit, intellectual property rights and a forceful technology transfer by US firms have been the main sticking points in the negotiations so far.

As we highlighted in Could China’s Foreign Investment Law Appease Trump? China’s National People’s Congress endorsed a law that addresses concerns of foreign companies doing business in China. Many foreign firms and experts see this law as a rushed attempt to appease Trump and get a trade deal.

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Trade deal uncertainty

Under such circumstances, if Trump decides to leave the tariffs on China for a “substantial period of time,” the uncertainty in the markets would only increase. Due to this uncertainty, businesses have also been shying away from big-ticket investments. Moreover, China might not agree on a deal, which would retain tariffs on its products. A complete breakdown of the US-China trade talks could be catastrophic for the markets. As we discussed in the previous part of this series, the rally this year has been partially due to optimism about a possible agreement.

US companies’ and China’s slowdown

Increasingly, many companies including FedEx (FDX), BMW (BAMXF), and UBS have been warning about the slowing global economy and China in particular. US companies Apple (AAPL) and NVIDIA (NVDA) have warned that China’s slowdown is hurting their earnings while Advanced Micro Devices (AMD), Micron (MU), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG) have also been affected by the world’s two largest economies’ trade tensions.

In China’s Slowdown Overtakes Trade War as Biggest tail Risk, we discussed how investors are increasingly concerned about China’s slowdown and its impact on businesses worldwide.

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